GC succession planning: An inconvenient truth?

Cynthia Dow, a member of the Legal, Government and Regulatory Affairs Practice at Russell Reynolds

Succession planning for general counsel today is no longer a necessary evil of business; it's evolved into a risk management function as the role of GC has become a more central component of board-level strategy.

Eileen Kamerick, chief financial officer at Press Ganey Associates—who also serves on the boards of Westell and Associated Bancorp—likens succession planning to a prenuptial agreement: when couples plan for the day they don't expect will ever come and their proactivity can help them navigate turbulent and emotional tides.

For general counsel, however, the day when transition will occur is inevitable, and therefore needs to be considered well in advance. Whether it's one year or…. five years away, succession planning goes far beyond identifying a potential successor; it involves a long-term professional development strategy that must allow a would-be GC the opportunity to expand the breadth of his or her experience on a number of different levels, according to Julie Preng, managing partner Korn/Ferry International.

“If you think of all the various risks that often come back, if not to the specific response of the GC (though often it does), it always involves the GC. And if you think about how the whole GC profile has changed since compliance has become so front-and-center you see the corollary between GCs sitting next to CEOs,” Preng explains. “It's become very clear that the role is really one of conscience of the company and risk management of the company holistically.”

As the GC post has evolved into a pivotal role in the C-suite, a comprehensive succession plan will take into consideration potential internal candidates who can be groomed over time. However, external candidates should not be ruled out.

While Kamerick says that succession planning has become increasingly important in today's regulated business environment, whether or not a company looks for successors externally is a decision that has to be made on company-by-company basis.

“It's less critical than CEO succession planning but it's still critical. It's something that a board has to undertake proactively…for the GC to bring in one or two of his deputies into the nominating or governance meetings,” explains Kamerick. “The issue is always: Do you stay inside or do you go to someone from another industry or go outside to a law firm? It depends a lot on the industry…if you have a smaller public company where you don't necessarily have a lot of internal lawyers, it might be harder to recruit from within. But it's good to gauge an internal candidate against external candidates. Lots of people have made the jump from being a law firm partner to being a GC…but the risk of a company going to a law firm is a much bigger risk than recruiting someone from within.”

In fact, of all the newly appointed general counsel in 2013, 59 percent matriculated from within their company, according to new data from Russell Reynolds Associates—this is an increase of 14 percent from 2012.

“There are some interesting shifts from the prior year, with internal appointments up again, as well as law firm appointments,” notes Cynthia Dow, a member of the Legal, Government and Regulatory Affairs Practice at Russell Reynolds.

Most Fortune 500 companies today are taking a proactive approach to GC succession planning, she says.

“They are very consciously creating and executing development plans for that particular role,” explains Dow. “In the external environment there really is a fulcrum of so many issues…globalization, emerging markets, dealing with regulators and on-the-ground issues as well as regulatory issue like the FCPA, anticorruption in the U.K. and China and elsewhere. It means that the GC activities are central to the activities of the business so they really have this central fulcrum role.”

Five years ago, succession planning for the GC was less prevalent even in the Fortune 500, but with such complex regulatory issues facing businesses today, most organizations and GCs are putting together a plan for the future. How well that plan is thought out and executed on is another matter, according to Victoria Reese, managing partner at executive search firm Heidrick and Struggles.

“Less and less we see anyone without a succession plan. Previously, direct reports, while all very talented, would stay in their silos of expertise. If the GC retired it was hard for that next level to be seen as broad enough to take over that top role,” Reese explains. “All the C-suite roles are making it part of their performance plan—the boards are saying their C-suite needs to have a succession plan in place. I see more and more GCs having that person and making sure that person gets put into broader roles, even in different areas of the business perhaps.”

Board exposure

Potential successors not only need to be groomed, but must have adequate to the board so the GC candidates have a good sense of corporate governance and the board and CEO can have confidence in that person, notes Dow.

Kamerick recalls a time when a sitting GC was putting forth the company's controller as his future successor. But because he hadn't come before the board, he was not considered as qualified as other potential candidates.

“I never met him, which didn't do him much good,” Kamerick says. “Maybe in his mind he was his successor but if the GC does not bring his or her potential successor to the board, it is not going to bode well.”

Part of the GC's role today is encouraging the board to think about many complex issues; succession planning as a risk management function is one of those critical areas. While the board typically does not have direct oversight over GC succession, its input on succession planning for the CEO will inevitably carry over to other C-suite roles.

“It is making tangible something that is intangible, and that is something the board is really supposed to be in charge of,” Kamerick adds. “As board members, we have very formal discussions with the CEO that are driven by the CEO succession. But that process cascades down to the other C-suite roles.”

Exposure to the board also allows directors to evaluate whether a potential successor has not only the legal background to take over the job, but also strong business acumen.

“As a director, I would want to know that person has great business judgment and very strong strategic orientation but is also someone who is comfortable executing,” says Preng. “And I want to make sure that person is very business friendly but can balance and calibrate risk; all risks are not the same severity for an organization.”

For Reese, who interfaces with general counsel on a regular basis, she sees that GCs who are conscientious about developing their teams and providing opportunities to grow within the organization are generally more successful finding successors.

“The GCs I see are people who take real interest and pride in developing their team and getting their team the visibility they need with the board to take them to that next level,” adds Reese. “I definitely think it's the GC's responsibility to give the highest performers the opportunity to develop a broader skill set and make them a business partner.”

Readiness and continuity

Another issue to consider in a succession plan is readiness and retention risk. If a potential successor to the GC is considered ready, the sitting GC needs to transparently implement ways to help him or her grow by providing additional opportunities within the organization.

“If an organization is invested in succession through development of internals it is a very strong positive for the culture. People believe that they are going to have opportunities to develop. This will do a lot to retain and attract talent,” says Preng.

The absence of a well-developed succession plan poses significant risks for businesses due to the potential intelligence that could be lost during an injudicious GC transition.

“There is institutional knowledge that could be lost. It's always important to have your legal team know there are opportunities to move up and have that as a possibility,” adds Reese. “It is incredibly important for morale and retaining your internal team.”

By working closely to fulfill the growth needs of their successors, transmitting their experience within the role and communicating a passion for corporate law, GCs have the opportunity to provide a strong basis of success for their eventual replacements.

“GCs love their jobs; they want to keep on working, they don't want to slow down,” Reese adds. “That is a joy I find recruiting in this function; they don't even want to think about stopping because they are so engaged and passionate about their work.”